Driving Energy Efficiency by Improving the Owner/Tenant Relationship

The tenant/owner relationship adds a layer of complexity to energy efficiency efforts. In general, the issue is that the two parties have different agendas. Tenants may not feel that they are getting the benefits from acting in a more energy efficient manner, while ownership may not be motivated to improve the energy profile of a building if the tenant is on a short-term lease.

There are reasons for the two parties to work together, of course. The owner of the property gains by improving the value and attractiveness of the building. Adding solar power, for instance, makes a facility more attractive to the next tenant and likely leads to higher rents and classier tenants. The tenant reduces utility charges and, if design changes are undertaken, improve work areas. Both organizations get “soft” benefits such as positive public relations and more enthused employees.

First and foremost is the money. Indeed, that was the first thing mentioned yesterday in a press release announcing The Landlord-Tenant Energy Partnership. The bottom line, the release said, is that cutting 20 percent of energy use in America’s commercial, retail, industrial and office buildings would save $5 billion annually.

The Landlord-Tenant Energy Partnership is a joint effort of the Institute of Market Transformation, the Retail Industry Leaders Association and the International Council of Shopping Centers. The initiative, according to the sponsors, aims to reduce energy use across billions of square feet of leased space by promoting green leases, increasing energy consumption transparency, promoting “energy-efficient build-out” methods and increasing landlord-tenant communications. The partnership’s advisory board includes CBRE, Kimco Realty and Nike.

Green leases are a very important element of the effort. In a July podcast with Energy Manager Today, Billy Grayson, the Director for Sustainability for Liberty Property Trust, described an important aspect of this approach: In short, simple co-operation opens the door to mutual gains. For instance, the installation and management of on-site renewable energy – solar power, in most cases – is not feasible without the cooperation of the tenant.

Green leases are key to laying out the responsibilities and benefits of both parties in such a project. “The only way to capitalize on an opportunity with a split benefit and split responsibility that has with a long term payback is to work it into the leasing conversation,” Grayson said.

There is a lot of good information available on navigating the tricky tenant/owner relationship. Energy Star, for instance, offers eight strategies. Two things are apparent in the list: They rely to a great extent on common sense and there is no silver bullet. The keys are to effectively communicate, empower, incentivize and in other ways create a mutually beneficial relationship.

An important tool in the quest for a smoother and mutually beneficial relationship between landlord and tenants is sub-metering. The ability determine the amount of energy each tenant in a building consumes fits hand in glove with the need to communicate.

MACH Energy sees several benefits to sub-metering. Two especially relevant ones are transparency and tenant engagement. The latter may be particularly important. Studies show that the more a person or an organization knows about their energy use, the more likely they are to curtail it. The use of sub-metering can clarify a tenant organization’s energy use and reduce it.

MACH CEO Jon Moeller provided the case for real estate investment trusts (REITs) to improve the energy efficiency of their holdings. He did this by responding to five common hesitations in implantation of energy management strategies and technologies. The five deal with a lack of perceived return; the likelihood that the building with soon be sold; uncertainty on what steps to take; the desire to have personnel interfacing with tenants and not “sitting behind a computer” and a reluctance to embark on projects with long set-up times.

The owner/tenant relationship is not always an easy one. With good communications and a sharing of common goals, however, it can be a beneficial one.